China's Repositioning in a Period of Global Growth
My topic of discussion today is the 12th Five-Year Plan. I would like to address two questions. First: what does the 12th Five-Year Plan mean for China? Secondly, what does it mean for the rest of the world?
If we want to talk clearly about economic development over the next five years, we must first look at changes that have already occurred in China. It can be said that China has been extremely successful over the past 30 years. As noted by the World Bank, China's development over that period is a unique story of success, with annual growth averaging 10 per cent. According to the World Bank, about 500 million people have been lifted out of poverty in China. China has performed well against the United Nations Millennium Development Goals and become the world's second largest economy. Per capita income has moved from the low-income to middle-income stage.
As we discuss China’s necessary transformations today, we must ask why such a successful China needs to change. We should look at past years of Chinese development to see what problems still exist and where China’s strengths lie.
I remember the days when the World Bank was discussing the Four Asian Dragons. It was said that the rapid growth of these countries came primarily from high rates of investment and savings, supplies of low-cost labour, basic education, and macroeconomic stability.
I think these conditions are very typical of those in China, which has about a 50 per cent savings rate and high rates of long-term investment. Under the two-year stimulus plan announced in 2008, the investment rate further improved.
Labour supply in China is clearly abundant. And China pays much attention to basic education. There are currently 27 million Chinese college students and 6 million college graduates every year - more than the entire population of Finland.
It can therefore be said that China is an outstanding example of the East Asian model. Indeed, many people say that China is a continuation of this model. But I think China must still retain its own unique characteristics. Why? Because among the group of developing economies China is rapidly developing, and as an economy still in transition, has not yet completed a number of significant transformations.
Experts on this panel have also mentioned that: 1) China's transition is not over; 2) its growth model will be difficult to sustain; and 3) that the model must change. These three factors have in turn create three problems, namely that China’s economy is unbalanced, uncoordinated and unsustainable.
In what way unbalanced? It is through excessive dependence on investment and exports, and excessive dependence on resources and resource-intensive, large-scale investment. Additionally, with the introduction of market mechanisms, the income gap is expanding, and there are problems in sharing the fruits of development.
Another issue is the growing pressure on our natural resources and environment. Over the years, particularly in this century, our coal consumption has increased by about 200 million tons per year. Last year, we consumed 3.5 billion tons of coal and imported more than 100 million tons. This compares with the year 2000, when our coal consumption was just over 1.3 billion tons.
Although the China story of the past 30 years may be described as truly magnificent, as we look into the future it will be more and more difficult to continue our original mode of development. We must increasingly look elsewhere for a new path.
China's economic growth rate is slowing. We in Shenzhen may see this more clearly, as the slowdown in the coastal regions is very obvious. In fact, using a longer-term framework for analysis, you can see that China's economic slowdown actually began prior to the financial crisis.
Take a look at past changes in the quarterly growth rates. In 2007, China's economic growth rates decreased on a quarter-by-quarter basis for the third quarter, while the financial crisis increased the magnitude of the slowdown. The first quarter of 2009 was the lowest point, and then we began a strong rebound due to the tremendous external pulling power of the economic stimulus plan. We pulled growth back up. But with the gradual drawdown of the stimulus package, our economic pace is slowing again.
This slowdown might mark a shift in our stage of development. We may have passed the stage of rapid-growth and transitioned to a less high-speed growth pattern that is potentially single digit. You can call it a medium-speed or second-stage growth phase. China's development may face challenges that are different from those of the previous 30 years. So why do we need to undergo these transformations? Because the conditions of China's economic growth are beginning to change.
We used to talk about high growth, high savings rates, and high rates of investment? But, with changes in population, and China's dependency ratio, look what we will soon be faced with.
The population dependency ratio will rapidly increase, bringing down the savings rate. This is because, with the implementation of family planning policy, we have significantly decreased the population of dependent children and shared the demographic dividend. We created new conditions for the future population. For the "80s-generation” child, he is now almost 32 years old, and his parents are approaching or have already reached retirement age. For every two people now leaving the working-age population, we have about one person entering the labour force.
Labour supply and demand are also changing. Last year’s report from the National Bureau of Statistics on China's working-age population showed a decrease of 0.1 per cent, meaning that China's working-age population is close to its peak. Our low-cost labour advantage may be irreversibly changing. All of these shifts will have consequences for growth that is resource and environment-intensive. Our higher levels of energy and resource consumption are clearly no longer sustainable. The tightening of external constraints also means that we can no longer continue to follow the previous model of rapid growth. It is clear we must adapt to this new stage of growth.
We may slow down, but we – including the international community – are not necessarily adjusting. So will the Chinese economy experience a "hard landing", and what will the effect of China’s slowdown be on the world?
Others will not adapt, and of course, we ourselves might not adapt. We are nervous about a slowdown and will soon take many measures, as we did before, to pull growth back up. But I believe this slowdown may be in fact in line with regular patterns and is a normal adjustment.
What is important is that, after this slowdown, how do we improve our quality of economic growth? How do we adjust the structure of our economy? How do we achieve economic balance? The answer is to expand domestic demand and cultivate a new growth momentum that is driven by innovation, to go with a green, low-carbon development model. To solve the problem of income distribution, we need to create conditions for common prosperity. We have said let some people get rich first and the issue will quickly be resolved. Yet while the number and ranking of (mainland) Chinese in Forbes’ list of billionaires is rising rapidly, we seem to lack a method to improve common prosperity.
Various transformations need to take place. I shall only talk about one, expansion of domestic demand. The majority of our migrant workers now consist of people born in the 80s. I remember a trip to Guangzhou when I spoke with them. I used the term "migrant workers," and they thought it sounded unpleasant. They said: “We are not migrant workers; we grew up here.” Who are “they”? They know nothing about crops yet they are not considered urban residents and lack city resident permits.
We say that China's urban population is nearly 700 million people and that its urbanisation rate is 51.3 per cent. This figure takes account of these migrant workers even though we do not otherwise recognise them as city residents. I believe they should be allowed to enjoy the same benefits as other citizens who are resident in China’s cities and that this would bring a huge boost to investment and consumption. Of course, we need institutional protections to realise such transitions. We need to deepen and promote reform and think about whether the current government-led model is the ideal model.
We firmly believe that China’s rapid growth still holds potential for promoting reform. There is great scope for improving China’s human capital: more than 6 million college students graduate each year; urbanisation is accelerating; research and development and innovation capabilities are strengthening. These are the positive factors we are dealing with; we must also have confidence.
I would like to turn now to what China's development under the 12th five-year plan means for the world. Particularly over the past decade, China has developed very fast - one could say too fast. The world has experienced a variety of crises: the dotcom bubble burst, the US financial crisis, and the European debt crisis. Within the global economy, Western countries seems to be slowing down or decelerating, while China has maintained rapid growth over the years. It may be that the outside world is not used to the new trend while China’s relationship with the world is ever-changing. What role should China play?
This problem is that there are two ways of looking at China. We say that it is a developing country, and will remain so for years. Since our per capita GDP is just $5,000, we still only rank around 90th in the world. Yet China is also the world's second largest economy, and it is a big country for which the rules of the game are not the same as for other developing countries. Great powers play by great power rules. If you want to become a great power you have to act in accordance with the rules of the great powers. Yet you are also a developing county. How can that dual role be reconciled?
This is the problem we face in our relations with the world. China needs a training process, and the world similarly needs an adaptation process, to adapt to China's rapid growth. China, meanwhile, should gradually be trusted to play its double roles well.
How will China's development in this way spread mutual benefit throughout the world Already, positive changes have been felt in recent years, such as those arising from access to China’s market, and from China’s rapidly-expanding imports. China is playing a very important role in global re-balancing. It is also actively integrating into the international financial system and promoting the development of the multilateral trading system. At the same time, China is increasing assistance to the least-developed countries.
We still need to learn; we need to play many roles; we need to work to promote a lot of different things, such as the internationalisation of the RMB. We will encounter friction, and we must continue learning. Similarly, other countries of the world need to adapt to China's rapid growth. In all, I think the future of the world’s relations and interactions with China will still accord with the logic of a forward-moving historical process. I maintain highly positive and optimistic. Thank you.